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Equity Agreements and Incentive Equity Plans
 9 Months Ended
Sep. 24, 2021
Share-based Payment Arrangement [Abstract]  
Equity Agreements and Incentive Equity Plans Equity Agreements and Incentive Equity Plans
Parent Incentive Plan — In October 2017, Crackle Holdings, L.P. (“Parent”) approved the Class B Unit Incentive Plan (“2017 Plan”) pursuant to the Company’s partnership agreement (“Partnership Agreement”), which established the terms and provided for grants of certain incentive units to employees, officers, directors, consultants, and advisors of the Company containing service-based and/or market-based vesting criteria. Class B-1 Incentive Units (“B-1 Units”) issued under the 2017 Plan vest in installments over a five-year period, subject to the grantee’s continued employment or service. Class B-2 Incentive Units (“B-2 Units” and collectively with the B-1 Units, “Incentive Units”) issued under the 2017 Plan contain both service conditions consistent with the B-1 Units and market-based vesting conditions that require the achievement of a specified return hurdle to the controlling shareholders in order to vest. Prior to the modification of the Incentive Units in connection with the Company’s IPO on July 27, 2021, the Company recognized $367 of compensation expense related to the Incentive Units within selling, general and administrative expenses in the accompanying condensed consolidated statements of operations during the three months ended September 24, 2021. The Company recognized $1,025 of compensation expense within selling, general and administrative expenses related to Incentive Units for the three months ended September 25, 2020.

2021 Incentive Plan — On July 16, 2021, the Company adopted the 2021 Equity Incentive Plan (“2021 Plan”) in order to provide a means through which to attract, retain and motivate key personnel. Awards available for grant under the 2021 Plan include non-qualified and incentive stock options, restricted shares of our common stock, other equity-based awards tied to the value of our common stock and cash-based awards.

Equity Award Conversion — During the three months ended September 24, 2021, and in connection with the IPO, all outstanding unvested Incentive Units were replaced with newly issued shares of our restricted common stock based on:

•a ratio that takes into account the number of unvested Incentive Units held,
•the applicable distribution threshold applicable to the Incentive Units, and
•the value of distributions that the holder would have been entitled to receive had the Parent liquidated on the date of such replacement in accordance with the terms of the distribution “waterfall” set forth in the Partnership Agreement.
Vested Incentive Units were exchanged into shares of our common stock using the same formula as unvested Incentive Units (together, the “Equity Award Conversion”). The Equity Award Conversion resulted in a modification of the Incentive Units for accounting purposes.

B-1 Incentive Unit Modification

The restricted stock awards issued in exchange for unvested B-1 Units were of commensurate value and did not result in any incremental fair value provided to the holders of such awards. The restricted shares of common stock that the holders received in exchange for their unvested B-1 Units are subject to the same vesting terms that applied to the B-1 Units prior to the Equity Award Conversion. The Company will recognize the remaining unrecognized compensation expense prospectively over the requisite service period under the straight-line method.

B-2 Incentive Unit Modification

Prior to the exchange for newly issued restricted stock awards, B-2 Units vested based upon the satisfaction of an explicit service period and a market condition. The restricted stock awards issued to replace B-2 Units vest based upon achievement of one or more of: (i) a total return hurdle, (ii) an average return hurdle and/or (iii) a volume weighted average price hurdle, which are substantially the same as the previous market-condition vesting criteria of the B-2 Units. Although the restricted stock awards that replace the B-2 Units do not contain an explicit service condition, the vesting is subject to continued employment and will be forfeited if these hurdles, which include both market and performance conditions, are not achieved on or prior to February 4, 2024, resulting in a derived service period. For the majority of B-2 Units, the requisite service period was extended as a result of the modification, however, the acceleration of compensation expense due to the modification of vesting terms was immaterial.

Awards issued in connection with the 2021 Plan — Under the 2021 Plan and in connection with the Equity Award Conversion, the Company granted 4,243 options to holders of B-1 Units (“Time-based Options”) and 1,155 options to holders of B-2 Units (“Market-based Options” and collectively with the Time-based Options, “Leverage Replacement Options”). The Leverage Replacement Options have an exercise price equal to the initial public offering price per share of the Company’s common stock and a contractual term of ten years from the initial grant date of the related Incentive Unit. The Time-based Options are subject to the same time-based vesting and the Market-based Options are subject to the same market-condition vesting criteria outlined for the restricted stock awards issued for the Incentive Units. Additionally, recipients of the Leverage Replacement Options received both vested and unvested Leverage Replacement Options in the same proportion as their vested and unvested B-1 and B-2 Units held immediately prior to the IPO and upon the Equity Award Conversion. The Company immediately recognized compensation expense for vested Time-based Options on the grant date as the awards provide value to the holders that is incremental to the value of B-1 Units held prior to the IPO and related modification. There were no vested B-2 Units at the date of the IPO and therefore no immediate expense recognition. In addition to the Leverage Replacement Options, the Company issued additional Time-based Options which vest over three years during the three months ended September 24, 2021.
Restricted Stock Awards

In connection with the IPO, the Company issued restricted common stock to holders of unvested B-1 Units and B-2 Units. The grant date fair value of restricted stock awards was determined to be $18.00 per share, based on the initial listing price of the Company’s common stock on the grant date.
Restricted Stock Awards
B-1 Incentive UnitsB-2 Incentive Units
Number of
Units
(in 000’s)
Weighted-
Average
Grant-Date
Fair Value
Number of
Units
(in 000’s)
Weighted-
Average
Grant-Date
Fair Value
Outstanding at December 25, 2020— $— — $— 
Granted833 18.00 807 18.00 
Vested— — — — 
Forfeited4 18.00 — — 
Outstanding at September 24, 2021829 $18.00 807 $18.00 

Stock Options

The Company utilized the Black-Scholes option pricing model to estimate the fair value of the Time-based Options. The Company used a Monte Carlo simulation to estimate the fair value and derived service period of the Market-based Options. Significant assumptions included in these models were the risk-free interest rate, the expected volatility, and the expected dividend yield. The average expected term for the Market-based Options was derived based on an average of the outcomes of various scenarios performed under the Monte Carlo simulation. The fair values of the stock options were derived using the following key assumptions:

Time-based OptionsMarket-based Options
Expected term
3.1-7.0 years
2.5 years
Risk-free rate of return
0.4 -1.0%
0.6 %
Expected dividend yield— %— %
Expected volatility45 %45 %

The summary of the Company’s option activity as of September 24, 2021 is as follows:

Time-based OptionsMarket-based Options
Number of
Units
(in 000’s)
Weighted-
Average
Grant-Date
Fair Value
Aggregate Intrinsic Value (a)
Number of
Units
(in 000’s)
Weighted-
Average
Grant-Date
Fair Value
Aggregate Intrinsic Value (a)
Outstanding at December 25, 2020— $— $— — $— $— 
Granted4,443 6.47 — 1,155 5.66 — 
Exercised— — — — — — 
Forfeited21 6.78 — — — — 
Outstanding at September 24, 20214,422 $6.47 $— 1,155 $5.66 $— 
Options exercisable at September 24, 20212,049 $5.90 $— — $— $— 

(a) The intrinsic value represents the amount by which the fair value of the Company’s stock exceeds the option exercise price as of September 24, 2021.
Restricted Stock Units — Following the completion of the IPO, the Company awarded restricted stock units (“RSUs”) under the 2021 Plan to its employees and directors. These RSUs are subject to time-based vesting conditions based on the continued service of the RSU holder. RSUs granted typically have an initial annual cliff vest and then vest quarterly over the remaining service period, which is generally one to four years. The grant date fair value of the RSUs was determined to be $18.00 per share based on the initial listing price of the Company’s common stock on the grant date. The fair value of RSUs granted after the IPO date is based on the Company’s closing stock price on the date of grant. During the three months ended September 24, 2021, the Company granted 391 RSUs with an aggregate fair value of $7,058 and a weighted-average grant date fair value of $18.07. During the three months ended September 24, 2021, 7 RSUs with a weighted average grant date fair value of $18.00 were forfeited. No awards vested during the period, resulting in 384 awards with a weighted-average grant date fair value of $18.07 outstanding as of September 24, 2021.

Total equity-based compensation expense — Equity-based compensation expense is included within selling, general and administrative expenses in the accompanying condensed consolidated statements of operations. For all equity-based compensation awards, the Company recognizes forfeitures as they occur. Compensation expense for the three and nine months ended September 24, 2021 and unrecognized stock compensation expense and weighted average remaining expense period as of September 24, 2021 consisted of:

Compensation ExpenseAs of September 24, 2021
Three months endedNine months endedUnrecognized Compensation ExpenseWeighted-Average Remaining Contractual Term
2017 Plan
Incentive units$367 $2,605 $— — 
2021 Plan
Restricted stock awards735 735 10,246 2.20
Time-based options12,278 12,278 16,329 2.68
Market-based options418 418 6,118 2.36
Restricted stock units593 593 6,339 2.38
Total$14,391 $16,629 $39,032 2.44

Control4 Equity Awards — In connection with the acquisition of Control4 Corporation (“Control4”) in 2019, the Company agreed to a settlement of Control4 equity awards that were outstanding immediately prior to the acquisition date, consisting of stock options (“C4 Stock Options”) and restricted stock units (“C4 RSUs” and, together with C4 Stock Options, “C4 Equity Awards”). As of the acquisition date, 2,998 shares of C4 Equity Awards were cancelled and converted into rights to receive cash payments (“Replacement Awards”). During the three months ended September 24, 2021, there was one forfeited Replacement Award. As of September 24, 2021, 83 unvested Replacement Awards remain outstanding and no vested Replacement Awards remain outstanding.

The Company recognized $890 and $1,538 of compensation expense relating to the Replacement Awards within selling, general and administrative expenses in the accompanying condensed consolidated statement of operations during the three months ended September 24, 2021 and September 25, 2020, respectively. The Company recognized $3,434 and $6,606 of compensation expense relating to the Replacement Awards within selling, general and administrative expenses in the accompanying condensed consolidated statement of operations during the nine months ended September 24, 2021 and September 25, 2020, respectively.

There was approximately $1,560 of unrecognized compensation expense related to the nonvested Replacement Awards, which is expected to be recognized subsequent to September 24, 2021 over a weighted-average period of approximately one year. Total unrecognized compensation expense will be adjusted for any future forfeitures.